Deutsche Bank plans to issue new Tier 1 debt in a deal that could reopen Europe's market for hybrid subordinated financial debt as banks seek to rebuild balance sheets in the wake of the financial crisis.

The German bank confirmed that it planned to issue euro fixed-rate perpetual notes, with annual call dates beginning from March 2015, and was managing the issue.

The Deutsche Bank deal would be the first of what is expected to be a series of new Tier 1 notes to hit the market in the coming months from banks that have not required government bailouts.

The deal would clearly be less than 1 billion euros ($1.4 billion) in size as the bank tests the market to see whether the time is ripe for this type of issuance, said a source familiar with the plans,.

I would be surprised if the deal were not a success, even though some institutional investors have said they resent the bank's decision not to call some subordinated debt issues, said a fixed-income analyst, who wished not to be identified.

The issue is aimed primarily at retail investors, and talk in the market puts the yield at 9 to 10 percent, the analyst said. That compares with its perpetual notes in the secondary market that were priced to yield around 8.25 percent last week.

Retail investors are looking for a high coupon and don't mind extension risk, the analyst, referring to the risk that the bank could decide not to repay the bond at the first call date.

Strong demand for Deutsche Bank's senior and covered bond issues earlier this year also show that investors' memories are short if deals are attractive, the analyst said.

Tier 1 notes, also called hybrids, are a cross between debt and equity. They are typically perpetual securities with call dates, which a bank can ignore. A bank also can stop paying interest on them without triggering a default.

But in the downturn, some crisis-hit banks, pushed by governments and the European Commission have stopped paying interest.

Because Deutsche Bank has not needed a government bailout, the risk of an EC-driven coupon deferral is low in this case, the analyst said.

For Deutsche Bank, these notes are a non-dilutive way of raising core Tier 1 capital, and even though they have become more costly, they may still be cheaper than raising equity, the analyst said.

($1=.6990 Euro)

(With additional reporting by Philipp Halstrick in Frankfurt; editing by Karen Foster)

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